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Pantaloon Retail’s (PRIL) core retail disappointed in Q1FY12 due to
slowdown in same store sales growth across segments (3.64% in value
retail, 6.53% in lifestyle, 1.26% in home retail) vis‐à‐vis Shoppers Stop,
which posted robust growth (11% in departmental, 8% in HyperCity).
Interest costs gobbled ~75% of its EBIT and jumped 40% YoY. Surge in
working capital has been one key reason behind the spurt in debt. The
company’s inventory days increased from 93 in FY10 to 110 in FY11 (much
higher than 32 for Shoppers stop). Slowdown in sales for two consecutive
quarters, mounting debt, delay in sale of non‐core assets, rising inventory
and unlikely allowance of FDI in multi brand retail are likely to impact
PRIL’s future growth plans. Hence, we downgrade the stock to ‘HOLD’.
Higher interest expense dents PAT
PRIL’s net sales surged ~13% YoY to INR29.1bn in Q1FY12. Growth was slow due to
muted consumer sentiments amidst high inflation. Sales were impacted by close down
of stores for a total of 12 days in Hyderabad due to the Telangana issue. PAT declined
23% YoY to INR330mn following higher interest expense (up 40% YoY) despite 420bps
YoY dip in tax rate to 29.5% from ~34.0%; net profit margin dipped 52bps YoY.
Margin improves as COGS pressure eases; expansion on track
EBITDA rose 18.6% YoY to INR2.5bn for the quarter. Gross margin improved due to
check on COGS (down 46bps YoY); EBITDA margin also improved (43bps YoY) to 8.7%.
Benefit of softening in cotton prices is evident from lessening of COGS pressure as per
our expectation. 0.44mn sq ft of retail space was added during the quarter to 15.68mn
sq ft (slightly below earlier run rate 0.5mn sq ft per quarter).
Outlook and valuations: Gloomy; downgrade to ‘HOLD’
Although we like PRIL’s diversified mix of retail business and its size, burgeoning debt
and higher inventory days remain key concerns which we have been highlighting
repeatedly; both these parameters continue to worsen. Due to upcoming elections in
major states, FDI in multi-brand retail looks unlikely. Hence, we are downgrading our
recommendation to ‘HOLD’ from ‘BUY’; maintain ‘Sector Underperformer’ rating. At
CMP, the stock is trading at 19.2x FY12E and 14.7x FY13E EPS.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Pantaloon Retail’s (PRIL) core retail disappointed in Q1FY12 due to
slowdown in same store sales growth across segments (3.64% in value
retail, 6.53% in lifestyle, 1.26% in home retail) vis‐à‐vis Shoppers Stop,
which posted robust growth (11% in departmental, 8% in HyperCity).
Interest costs gobbled ~75% of its EBIT and jumped 40% YoY. Surge in
working capital has been one key reason behind the spurt in debt. The
company’s inventory days increased from 93 in FY10 to 110 in FY11 (much
higher than 32 for Shoppers stop). Slowdown in sales for two consecutive
quarters, mounting debt, delay in sale of non‐core assets, rising inventory
and unlikely allowance of FDI in multi brand retail are likely to impact
PRIL’s future growth plans. Hence, we downgrade the stock to ‘HOLD’.
Higher interest expense dents PAT
PRIL’s net sales surged ~13% YoY to INR29.1bn in Q1FY12. Growth was slow due to
muted consumer sentiments amidst high inflation. Sales were impacted by close down
of stores for a total of 12 days in Hyderabad due to the Telangana issue. PAT declined
23% YoY to INR330mn following higher interest expense (up 40% YoY) despite 420bps
YoY dip in tax rate to 29.5% from ~34.0%; net profit margin dipped 52bps YoY.
Margin improves as COGS pressure eases; expansion on track
EBITDA rose 18.6% YoY to INR2.5bn for the quarter. Gross margin improved due to
check on COGS (down 46bps YoY); EBITDA margin also improved (43bps YoY) to 8.7%.
Benefit of softening in cotton prices is evident from lessening of COGS pressure as per
our expectation. 0.44mn sq ft of retail space was added during the quarter to 15.68mn
sq ft (slightly below earlier run rate 0.5mn sq ft per quarter).
Outlook and valuations: Gloomy; downgrade to ‘HOLD’
Although we like PRIL’s diversified mix of retail business and its size, burgeoning debt
and higher inventory days remain key concerns which we have been highlighting
repeatedly; both these parameters continue to worsen. Due to upcoming elections in
major states, FDI in multi-brand retail looks unlikely. Hence, we are downgrading our
recommendation to ‘HOLD’ from ‘BUY’; maintain ‘Sector Underperformer’ rating. At
CMP, the stock is trading at 19.2x FY12E and 14.7x FY13E EPS.
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